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Corporate Social Responsibility

Introduction to CSR/Sustainable Procurement
Promoting CSR on the Supply Chain

Global Compact Network Japan
Supply Chain Working Group (FY 2019)

Note: Pictures and images in these slides that do nothave the source listed are stock images not
associated with the content

December 2019 Edition

Package Contents
 Lecture: "Introduction to
CSR/Sustainable Procurement" CSR/Sustainable Procurement
Experience Game
<Game of Choice>2

Package Contents
 Lecture: "Introduction to
CSR/Sustainable Procurement" CSR Procurement Experience Game
<Game of Choice>3

Lecture: "Introduction to CSR/Sustainable Procurement"<Reference page>
Introduction toCSR/Sustainable
Procurement p. 3

1. About "Introduction to CSR/Sustainable
Procurement“・ Background and why it was created・ Vision for how the Introduction will be used
1) To promote understanding of CSR/Sustainable procurement
among those learning about the subject for the first time2) To promote understanding of and cooperation in
CSR/Sustainable procurement within individual companies
3) To promote understanding of and cooperation in
CSR/Sustainable procurement from business partners
4Lecture: "Introduction to CSR/Sustainable Procurement"<Reference page>Introduction to
CSR/Sustainable
Procurement p. 4

2. About CSR/Sustainable Procurement
2. 1 What is CSR/Sustainable Procurement?
[Conceptual diagram of supply chain]
Raw materials supplierParts supplier
Assembler/Manufacturer

Retailer

Customer

Product

Sale

Distribution

Manufacture

DesignProcurement

Rawmaterials

Logistics
company
Transport
company

CSR/Sustainable procurement is defined as "Activities that attempt to fulfill corporatesocial responsibility through the entire supply chain by adding, when a buyer (company)
is procuring products, materials or raw materials, etc., items required from theperspective of the status of response to factors including the environment, labor
conditions, and human rights, to the conventional items of quality, performance, priceand delivery time."
5

Lecture: "Introduction to CSR/Sustainable Procurement"<Reference page>
Introduction toCSR/Sustainable
Procurement p. 5

2.2 What are the Issues involved in CSR/Sustainable Procurement?
[Table organizing representative problems based on the four categories ofhuman rights, labor, environment and anti-corruption defined by the UN
Global Compact]
Human rights/LaborEnvironment

Anti-corruption

・Elimination of forced labor・Elimination of child labor
・Elimination of long working
hours
・Elimination of illegal low
wages
・Elimination of inhumane
treatment
・Prohibition of discrimination
・Guarantee of right to form
employee organizations(Freedom of association)
・Realization of workplacesafety and a healthy
environment

・Prevention of pollution
・Management of harmful
substances
・Management of wasteproducts (wastewater, etc.)
・Management of substances
causing air pollution
・Management of substances
included in products
・Consideration ofbiodiversity

・Elimination of unethical businesspractices
・Prohibition of bribery andcorruption
・Prohibition of abuse of dominantposition・Prohibition of granting or
receiving inappropriate profits
・Prohibition of competition
restrictive acts
・Provision of accurate information
regarding products and services

Particularly difficult forJapanese companies andJapanese to imagine

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Lecture: "Introduction to CSR/Sustainable Procurement"<Reference page>
Introduction toCSR/Sustainable
Procurement p. 6

3. Merits of CSR/Sustainable Procurement Initiatives
3. 1 Social and Environmental Risk
in Supply Chains
What does it mean to be exposed tocondemnation from society?
<<Representative examples of companies having lost trustas a result of being exposed to condemnation from society>>[Human rights/labor-related]
Disney, Walmart, Nike, Ikea, Apple, Suzuki, etc.

[Environment-related]
Adidas, Nike, Ralph Lauren, PVH, Puma, Lacoste, H&M, Uniqlo, etc.

[Prevention of corruption-related]
GlaxoSmithKline, FIFA, etc.
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Lecture: "Introduction to CSR/Sustainable Procurement"<Reference page>
Introduction toCSR/Sustainable
Procurement p. 14-15

Appendix: Actual Status of Child Labor and its Effects◇ What is child labor?

Source: Global Estimates of Child Labor: Results
and trends, 2012-2016

Q. In what regions are childlabor most prevalent?
(Regional distribution ofchild labor)
Europe andCentral Asia
5.534 people(3.6%)

A child working in adyeing process at aleather factory

Arab Countries
1.162 people(0.8%)South andNorth America
10.735 people(7.1%)

Asia-Pacific62.077 people(40.9%)

Q. In which industries arechild labor most prevalent?
(Number of child laborers
by industry and maintypes of labor)

Service sector
26.1 million
people (17.2%)

Africa72.113 people(47.6%)

Industry
18 million
people (11.9%)

Agriculture,Forestry andFisheries
107.5 million
people (70.9%)
Photograph by Larry C. Price /Pulitzer Center on Crisis Reporting8

Lecture: "Introduction to CSR/Sustainable Procurement"<Reference page>
Introduction toCSR/Sustainable
Procurement p. 16-17◇ What is the impact of human rights violations such as childlabor on corporate performance?
Business Impact Estimation ofHuman Rights Abuse
In the case of American apparel companies

Child/Forced laborwere found out,
boycott begun

Business Impact Estimation(1998-2002)
About 12,180 million USD≒ About 26.1% of consolidated sales

Estimated sales
if boycott has
not occurred

Sales results

9Lecture: "Introduction to CSR/Sustainable Procurement"
The collapse of Bangladesh's Rana Plaza building

1. Overview of the case1) In 2013, Rana Plaza, a commercial building
housing a sewing factory near Dhaka, the capitalof Bangladesh, collapsed, killing more than
1,000 people and injuring more than 2,500.

2. Response
1) Government
・Factories with safety issues were shut down and inspections were orderedof all factories in the country.

2) Companies
Western apparel companies who outsource production set up support organizations.
・Accord on Fire and Building Safety by 220 European companies⇒ Manages approximately 1,600 factories after inspecting building structures, fireprotection, electrical systems, etc., and provides continuous safety inspection andguidance・Alliance for Bangladesh Worker Safety by 29 US companies⇒Works to improve worker safety and employee education in the sewing industry
10Lecture: "Introduction to CSR/Sustainable Procurement"
The collapse of Bangladesh's Rana Plaza building

3. Problem background1) The employees discovered cracks in the building and reported them to theirmanager.
2) The building owner ignored recommendations of local police to evacuate building
for inspection.

3) The factory denied the right to express concerns about safety and working
conditions (union activities, etc.), and the government lacked controls to protect.
workers' rights

4. Lessons for companies that place orders
1) They need to resolve issues involving public andprivate stakeholders, including local governments,
NPOs and NGOs, and consumers.
2) There is an increasing awareness ofCSR/Sustainable procurement, including in theapparel industry, and they need to increase thetransparency of the production backstory throughthe supply chain.
11Lecture: " Introduction to CSR/Sustainable Procurement"
Forced labor to foreign workers at supplier factories

1. Overview of the case1) In July 2015, Reuters investigated the working conditions of foreign workers at
supplier plants for automaker S in Ota City, Gunma Prefecture, Japan.
2) It reported that the foreign workers, mainly refugees and foreign skilled interns,
account for 30% of workers in Ota city, and that many were in bonded or forcedlabor.
3) Automaker S initially took the position that "We will not be directly involved, andthe management of the labor environment is basically the responsibility of thelocal supplier"

2. Response
1) Automaker S and its U.S. subsidiaries required
each supplier to respect the human rights of its
employees and to comply with international
standards of conduct.
(Statement issued on July 31, 2015)12

Lecture: "Introduction to CSR/Sustainable Procurement"
Forced labor to foreign workers at supplier factories

3. Problem background1) Legal barriers against migrant workers areinconsistent with Japan's need for foreigner
labor due to its declining birthrate and shrinking
population. (entry laws severely restrict
residency)
2) Questions are being asked about the spread ofillegal worker dispatch agencies and the attitudeof manufacturers who have tolerated them.

4. Lessons for companies that place orders
1) The companies that place orders with the suppliers are being held accountable
for the suppliers' working environment.
2) The companies need to require their suppliers to respect the human rights ofworkers and to prevent human rights abuses in an effective manner.
3) The New Immigration Act is expected to expand the acceptance of foreign
workers in Japan, so closer attention must be paid to what's happening in thesupply chain.
13

Lecture: "Introduction to CSR/Sustainable Procurement"
Frequent worker suicides at a supplier's manufacturing plant

1. Overview of the case1) Starting around 2010, there were many suicides due to harsh working conditions
at the Chinese plant of Company F, which is a supplier to U.S. Company A.
2) It was revealed that the work paid a monthly income of just under 5,000 yuan(about 65,000 yen at the time) with over 80 hours of overtime per month.
3) Thousands of employees went on strike and consumers boycotted the productsof Company A.

2. Response[Response of Plant of Company F]
1) Raise wages and introduce labor robots
2) Hire counselors and install suicide prevention
nets[Response of Company A]
1) Conduct an audit of Company F
2) Provide guidance on improvement measures
such as better working conditions andsetting of overtime limits
14

Lecture: "Introduction to CSR/Sustainable Procurement"
Frequent worker suicides at a supplier's manufacturing plant

3. Problem background
1) In addition to long working hours, illegally low
wages and health and safety issues are
discovered at Company F's factory.
2) Company A has released Supplier Responsibility
reports since 2006, but does not have specificinformation on individual suppliers.
3) In 2004, the EICC: Electrics Industry Code ofConduct (now RBA: Responsible BusinessAlliance) was established for the entire supply
chain in the electronics industry, but it wasineffective.

4. Lessons for companies that place orders
1) Work hard to understand the supplier's working environment (through audits andthe SAQ: Self-Assessment Questionnaire), and work with the supplier to resolve
the issues that arise.
2) For issues that are difficult for individual companies to deal with, consider crossindustry measures through industry groups and participation in international
initiatives
15

Lecture: "Introduction to CSR/Sustainable Procurement"
AI-based recruitment furthers discrimination against women

1. Overview of the case1) Company A, a leading U.S. e-commerce site, built an AI-based
recruitment system using computers to find talented people.
2) Based on machine learning, a computer extracted and analyzed
approximately 50,000 keywords from applicants' resumes to selectsuitable candidates for the company.
3) The AI system preferred male candidates and gave lower ratings tofemale candidates.

2. Response
1) Company A implemented
modifications to the recruitment
system software, but was unable toidentify the ultimate cause or reason.
2) The AI-based recruitment project waseventually dissolved.

16

Lecture: "Introduction to CSR/Sustainable Procurement"
AI-based recruitment furthers discrimination against women

3. Problem background
1) The AI analyzed the resumes of applicants for the past 10 years, butsince most of the applicants for technical jobs were men, the systemcame to prefer hiring men.
2) The system developers may not have been able to understand andassess in advance the possibility of human rights risks such as bias anddiscrimination caused by AI.

4. Lessons for companies that place orders
1) New human rights risks may arise atbusinesses or production sites that try
new technologies such as AI and IoT.
2) Seek to understand global trends on
new issues such as "Technology andHuman Rights"

17

Lecture: "Introduction to CSR/Sustainable Procurement"<Reference page>
Introduction toCSR/Sustainable
Procurement p. 10

4. Future Efforts towards the Development of CSR/Sustainable
Procurement
1) Explanatory sessions
for business partners
Corporatephilosophy
CSR/sustainable
Procurement
Policy and Codeof Conduct

2) SAQ
3) Audits
Report on
evaluation results

1) Explanatory sessions for businesspartners
This process ensures that buyers (companies)
and suppliers share a CSR/Sustainable vision and principles.
2) SAQ (Self-Assessment Questionnaire)This can also refer to a standard self-assessment form,
but here it represents a process by which the supplier conducts aself-assessment of its understanding of CSR/Sustainable requirements, and the buyer(company) is able to grasp the level of understanding of the supplier.
3) Audits
This is a process by which the buyer (company) and the supplier directly and indirectly
cooperate in evaluating their current status, and employ the results in activities aimed
at making improvements.

On to thenext step18

Package Contents
 Lecture: “Introduction toCSR/Sustainable Procurement”
 CSR/Sustainable Procurement
Experience Game<Game of Choice>19

Experience game: <Game of Choice>

When a human rights issue suddenly arises,
leading to social condemnation of a company,
this game lets you work through theexperience realistically by playing the role ofthe company or one of a variety of otherstakeholders.
If you were the president of the company,
what would you do?
If you were a stakeholder, what would you do?
This game helps you understand theimportance of CSR/Sustainable procurement
through getting into each role and intenseinteractions between the company and20
stakeholders.